"In our view, the city is unlikely to pursue bankruptcy as an immediate course of action," S&P wrote. "We note the possibility of debt service and other payment deferrals as early as fiscal 2015 as an option to address the city's budget deficit."

S&P credit analyst Lindsay Wilhelm cited the 60-day report released on March 24 by Atlantic City Emergency Manager Kevin Lavin mentioning the possibility of debt service and other payment deferrals for as early as the fiscal 2015 year to address a $101 million budget gap.

"The emergency manager's report reflects several possible solutions to the city's fiscal 2015 deficit that are both recurring and one-time in nature," said Wilhelm. "Ultimately, for the city to stabilize and improve, it must implement recurring and ongoing measures. However, short-term solutions can provide a financial cushion in operations while the city makes long-term adjustments."

Wilhelm said there remains risk with some of the short-term solutions Lavin outlined in his report that if not successful could open the possibility of bankruptcy. S&P dropped Atlantic City to a junk-bond rating of BB from BBB-plus on Jan. 24 following an announcement by New Jersey Gov. Chris Christie that he was appointing an emergency manager to oversee Atlantic City's finances.

Some of the short-term challenges Wilhelm highlighted that Atlantic City is facing include accessing the markets to pay a $40 million loan from the state following a 60-day extension granted on March 31 as well as retiring $12 million in bond anticipation notes slated to mature this August. The city is also tasked with negotiating with key stakeholders such as casinos and bondholders "to address its near-term financial and liquidity pressures."

Wilhelm said within the 90-day credit watch period there should be more clarity on Atlantic City's ability to access capital markets and its plan to address its fiscal challenges.

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